Northstar closes maiden VC fund at $140m with support from existing LPs

Southeast Asian private equity major Northstar Group has secured the final close of its maiden venture capital fund at $140 million, a tad below its target.

The early-stage-focused Northstar Ventures I, L.P. (NSV I) was targeting a final close of $150 million, sources had told DealStreetAsia earlier.

“We have raised $140 million, which is around our estimated target. It has been a challenging fundraising environment in general. Since quite a few of the fund’s backers are existing LPs, we managed to raise this capital successfully,” Northstar’s top executives confirmed to DealStreetAsia.

PE fund managers have been facing a challenging funding climate this year.

Four PE funds reached a final close in the first eight months of 2023, of which at least three failed to meet their initial fundraising targets, according to DealStreetAsia DATA VANTAGE‘s report Private Equity in SE Asia: H1 2023.

Growtheum Capital Partners, for instance, closed its first fund at $567 million in August this year, below the target of $600-800 million. The Asia Energy Transition Fund, by Switzerland’s SUSI Partners, which closed at $120 million, also failed to meet its initial target of $250 million.

“It has been a challenging fundraising environment in general, but we were fortunate to receive support from existing Northstar investors,” said Northstar’s head of investor relations Roger Suter.

DealStreetAsia had reported quoting sources that Northstar held the second close of NSV I at $120 million in March this year and the first close at $90 million in January. Singapore Sovereign Wealth Fund GIC was said to have been roped in as the anchor investor of the vehicle, which also received backing from other institutional investors in Southeast Asia and the Middle East.

NSV I invests between $1 million and $15 million per deal. Its core focus areas are consumer internet, financial technology, and enterprise software and mainly targets startups in Indonesia and, to a lesser extent, other countries in Southeast Asia.

The vehicle has already backed a few startups in the region. Some of its investments from the fund are Makmur Tech Pte, an Indonesian investment app that helps users invest in mutual funds; metaverse platform UTown Singapore Technology; 1Bstories, a startup that helps creators, brands, publishers, and platforms build interactive stories; and Wahyoo, which provides digitalisation services for restaurants.

In a freewheeling interview with DealStreetasia, Northstar’s head of investor relations Roger Suter; managing director Carlson Lau; senior partner Sunata Tjiterosampurno; and chief investment officer Wong Chee-Yann spoke about the VC fund’s investment plan for 2024, the current market situation, and some updates on its PE funds.

NSV I is targeting more deals in agri tech and will invest around 70% of its capital in Indonesia.

Stressing that Northstar’s PE and VC strategies are complementary, Lau said: “Northstar’s PE fund can also write larger cheques if the portfolio companies of the VC fund scale well.”

DealStreetAsia had reported in November that Northstar Group is targeting $600 million for its sixth fund and plans to launch this vehicle in early 2024. Singapore-based Northstar Group closed its fifth fund, Northstar Equity Partners V Limited (Northstar V), at $590 million in December 2021.

Edited excerpts from the interview:

Can you tell us more about the final close of the debut VC fund? How challenging was the fundraising process?

Roger Suter: We raised nearly $140 million for Northstar Ventures I, L.P. (NSV I), which is close to our original target. It has been a challenging fundraising environment in general, but we were fortunate to receive support from existing Northstar investors. The limited partners in the fund include institutions such as sovereign wealth funds, strategic technology investors, family offices, and high-net-worth individuals, from across Asia and the Middle East.

Roger Suter, Head of investor relations, Northstar

What is the VC fund’s sectoral focus and ticket size? Can you also share your investment plans for the next year?

Carlson Lau: We normally look to invest around $1 million for an initial stake, but we can go up to $10-15 million from the VC fund through follow-on investments in subsequent rounds. Northstar’s PE fund can also write larger cheques if the portfolio companies of the VC fund scale well. We have been closing investments at a pace of about one deal every one to two months. The fund already has more than 10 positions and we expect to continue the same investment pace in
2024.

“We have been closing investments at a pace of about one deal every 1-2 months.”

What is NSV I’s competitive advantage?

Carlson Lau: We have a broad and deep heritage of investing across market cycles, even when the end-consumer markets and fundraising environments are challenging. Our long history of investing in the financial services, consumer, and enterprise sectors through these cycles provides us with differentiated insights into investing and helps us provide value-added advice to our startups.

Wong Chee-Yann: Our VC and PE strategies are complementary. Our VC fund can invest in seed, series A, and series B stages, while our PE fund can make follow-on investments by writing bigger cheques to the emerging winners. In addition, we have strong relationships with many of Indonesia’s leading companies including Indosat, Alfamart, Indomaret, GoTo, Bunda Medika and others.

“Our VC and PE strategies are complementary.”

What is the key factor you consider before investing in a company?

Carlson Lau: Our fundamental philosophy is to back founders with strong execution capabilities operating in big markets. A clear and solid business model and attention to capital efficiency are also pluses, but not necessary criteria.

Carlson Lau, Managing Director at Northstar Group.

What’s next for Northstar in terms of sectoral focus and new geographies?

Carlson Lau: We are looking at more agritech deals given how vast, but traditional, the agriculture sector is in Southeast Asia. Fintech and enterprise software remain interesting, particularly in the usage of Artificial Intelligence to streamline operations and manage risk. Indonesia is our core market, and we are excited about the founders we have met and are planning to back in 2024. We also have a strong pipeline of investments over the next few months, and we anticipate closing further investments in Vietnam, Singapore and the Philippines.

“We are looking at more agritech deals given how traditional the agri sector is in SE Asia.”

Sunata Tjiterosampurno: We have always looked to invest in countries and segments with macro tailwinds. In our traditional stronghold of Indonesia, GDP per capita is set to increase substantially in the coming years and thus we are confident the companies we invest in Indonesia can scale. In casting our sight beyond Indonesia, we plan to capitalise on our PE fund’s experience investing across ASEAN including Singapore, Vietnam, the Philippines and Thailand. For the VC fund, we will likely invest around 70% of our capital in Indonesia with the remainder across the rest of ASEAN.

“For the VC fund, we will likely invest around 70% of our capital in Indonesia.”

What are your views on the exit landscape that you see in Indonesia?

Carlson Lau: All the three usual exit options IPOs, M&As and secondaries, where a new investor buys out earlier investors, are available in Indonesia. What we have advised our startup founders is that if they build a sizeable, sustainable business with a large addressable market, exit is not likely to be a problem. In Indonesia, we have seen a few unicorns providing good exit returns for investors. Further, the IPO markets in 2023 have started to recover compared to last year, and we have seen tech companies going public this year. Going into 2024, we expect to see more big tech IPOs, which should more broadly buoy the exit environment.

“For a sizeable, sustainable business with a large addressable market, exit is unlikely to be a problem.”

What’s next for Northstar PE, any sector that you want to increase your focus on?

Roger Suter: Consumers, financial services, and the digital economy remain our focus. We see healthcare as a positive sector within the consumer theme.

Sunata Tjiterosampurno: We have an investment in the Bunda Hospital Group, which has provided perspective and insight into the healthcare sector. The Indonesian government is focused on this area and has recently adopted new rules that will open up healthcare. We see healthtech as a beneficiary of this trend and we are looking at a number of interesting startups in this area.

Sunata Tjiterosampurno, senior partner, Northstar

Talking about valuation correction, where are we currently?

Carlson Lau: Several growth-stage companies raised substantial amounts of capital at arguably elevated valuations in 2021. Right now, you do not hear of much fundraising in that particular segment as these companies still have the capital to prove their valuation. What we see today is a healthy correction in valuation, which is good for investors and founders.

How are things different from where it was two years back and when will things get better?

Carlson Lau: The maturity of founders has changed. The founders we are backing in this environment not only have great vision, but also a strong appreciation for the need for tight operations and execution of their business plans in a capital-efficient manner. These founders have a deep desire to build large, long-term sustainable businesses, and are not focused on fundraising for the sake of publicity.

Wong Chee-Yann: There is a lot of dry powder in Southeast Asia, but the due-diligence process is taking longer as investors want a deeper understanding of the business before writing the cheque.

Wong Chee-Yann, chief investment officer, Northstar

What is the biggest litmus test for SE Asian startups to attract funding?

Carlson Lau: I would not say that there is a single litmus test as we evaluate each startup on a case-by-case basis. Looking at our pipeline, we see lots of interesting investment opportunities as we enter the new year.

What are your thoughts on the latest trends you are observing, especially regarding new sectors/strategies and NFTs? Are you looking at launching sub-sector funds in ESG or crypto?

Roger Suter: ESG and impact are gaining a lot of attention, and we are quite focused on these areas. We have a well-developed ESG approach, which is reflected in our detailed, publicly available ESG Policy. We are also looking at impact frameworks to determine how that might complement our existing VC and PE strategies.

Carlson Lau: We remain open-minded about novel sectors like Web3 and NFTs, but we are highly disciplined investors and prefer to focus on investing in startups in our core sectors of consumers, financial services and enterprise.

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